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IT’S an unusual and hum bling experience for US investors to have to look to Pakistan for a lesson in capitalism.

But this week provided such an opportunity and it’s one that regulators in Washington should have taken very seriously.

The tutorial played out on the streets of Karachi as angry investors rioted, protesting the collapse of the Pakistani market.

What triggered the violence was the lifting of a rule that banned short selling and daily price declines of more than 1 percent.

The measures had been enacted by Pakistani authorities hell-bent on stabilizing the market. Needless to say, when they were lifted, all hell broke loose and stocks plunged 11 percent.

So back here in the US, what did Christopher Cox, the head of the Securities and Exchange Commission, do the next day?

Faced with nervous selling of the shares of Fannie Mae and Freddie Mac, he joined the regulatory jihad and decided to impose a similar short-selling ban on shares of Fannie Mae, Freddie Mac and 17 other financial stocks whose main criteria for making the list was they all appeared likely candidates to be profitable shorts.

Short sellers have long suffered a bad reputation. It’s dangerous to forget that short sellers can provide a valuable market function, especially when most people are caught up in a bubble.

For now, the SEC rule to limit naked short selling (selling short without possession of the actual shares) seems to have calmed the storm in the financial stocks.

But beware – the order will expire, perhaps just in time for another miserable Wall Street August.

TERRY KEENANis anchor of Cashin’ In, an investing program that appears on Fox News Channel on Saturday mornings at 11:30. E-mail terry.keenan@foxnews.com.